I worked last night during the debate and so am listening to it now. A topic which I don't fully understand is the effect of reducing taxes on small business owners. I understand that the core concept is that if a business is more profitable then they are more likely to hire more workers. Where I lose it is why they would. There is no logical reason to hire more help then is needed. (i.e. a gas station owner will not have three employees behind the counter if it only takes one to deal with the average customer traffic, no matter how much additional profit is coming in.) The only reason to hire additional help is for expansion or an increased customer base. With so many individuals unemployed and under employed people are taking on traditional small business roles (cooking, home repair, gardening) themselves or going to larger, less costly businesses. It just seems to me that the real issue with small business ownership is a lack of customers. As side notes I can see tax breaks for additional hiring/ expansion of a business. I can also see how higher profits can lead to lowering cost to customers at the expense of the owner allowing a small business to remain competitively priced. I also get that if a company owner isn't making money he goes out of business and his employees lose their jobs, but I don't understand how making the business more profitable can Create new jobs. Wait, I get the concept that it will make starting up a new business a safer investment, but without an increased customer base all that means is that the new company and exsisting companies have to share the same amount of income.
Being a small business owner this is really Republican rhetoric. Yes, taxes for enterprise can be reduced but not under our current tax structure. The largest burden is the Payroll tax which is a cost that enterprises "write-off" as a cost of employment. It is a part of the "compensation" package for the employee just like health insurance is or employer contributions to a 401K plan if the enterprise offers those. Of course the Payroll tax, along with FICA taxes, are dedicated to Social Security and Medicare and those programs are already underfunded. Corporate income taxes are not a burden to small business because the individual owner is still responsible for income taxes regardless of whether they come from the individual or the corporation. Unless Republicans propose eliminating the income tax all together (repeal of the 16th Amendment) and replacing it with a consumption tax, which only a few support, then the problem will always be income taxes.
So the Payroll tax is sort of the "cost of having someone else do the work for you while you profit off of it and so you have to chip some in for society" tax? That sounds reasonable if put to good use. To go back to my original question, as a small business owner and therefor in a better position to reflect on the subject then myself, if you could afford it, would you ever hire more employees then you needed?
Yahtzee!!! The demand is the same. Just no customers with cash in their pockets. People get sick and need calories in their stomachs independent of the number of dollars they have. Republicans have a wierd concept of demand. Additionally, payroll taxes are offset by the price inflation they cause, and you gotta be a really poor businessman to show a profit at the end of the year.
That's true for some businesses not all business. Some businesses in this economy are successful. And with a little more money they will hire. My problem with Mitt is not that companies need more cash. This is not your typical cyclical recession that can be resolved with a quick infusion of cash in the form of tax cuts or government spending. We have real structural problems that will not be solved with a simple tax cut.
I agree, what I see as our real issue, nation wide, is that we have become a people of self consumption. Small businesses (and by small, I mean local) survive on the incomes of people who survive on the incomes of national markets, who in turn, survive on the exports of other countries. The only ways to actually improve our economy are to increase production at the cost of our natural resources or reduce the cost of production to the near slave labor wages of our competition and begin to export. Neither sounds good to me, but it is time that we accepted the fact that we are no longer functioning at a local, state, or even national level, and now need to think about gobal economics. And since an idea popped into my head as I was typing that I googled U.S. Oil Exports and learned that for the first time in over 60 years we actually exported more oil then we imported. From a retail standpoint, what we need to do then is make cars not better, but cheaper, export them to other countries at low cost and then hook them on our oil. Just a thought. Another though occurs to me now, maybe a helpful solution also isn't to try and brand America as quality, but quality you can afford. Just a thought.
Personally I would make the success of the enterprise force me to hire more employees whether that is the to meet customer demand or to increase the customer base. Of course increasing the number of employees also increases my personal wealth when it's based upon the success of the enterprise while I'm also able to take a smaller "cut" from each employee. If I only have two employees and I'm the executive (i.e. a non-producer) then I have to take over 1/3rd of the income they generate if I'm to earn the same wages they earn. If I have more I can reduce that percentage and still make more than the employees and I should always earn more than the employees. Having more employees than I need adds to my "non-value added" costs of the enterprise which reduces my income and/or increases the costs of my goods or services. Non-value added expenses always hurt the enterprise by reducing profits and/or increasing costs and this becomes highly evident when competing with foreign goods that don't have those same expenses. This is the problem with the Payroll tax as I have to pay a cost for labor that isn't imposed on foreign goods. A product produced in China and sold in the United States doesn't have to "chip into the pot" for Social Security and Medicare so it costs less than what I can sell the identical product for. That's why Walmart makes so much money because it predominately sells goods from China that US enterprise cannot compete with on prices. It's why manufacturing jobs go to China. We don't have a level playing field. Now most Americans support Social Security and Medicare, which as noted are underfunded, but the way we tax for them is driving manufacturing out of America. If we lose manufacturing jobs then we lose revenue to pay for Social Security and Medicare. If we're going to fund these federal programs doesn't it make more sense to have a tax that is paid by all goods sold in America equally as opposed to only taxing US produced goods? Wouldn't it be better to level the playing field for manufacturing in America? This is why I support a consumption tax with prebates that make them progressive and fair for all Americans. It reduces the costs of goods I produce by lowering my "labor" costs and also applies the same tax to the retail prices of foreign goods that are applied to the goods I produce. As a small business owner I also find the adminstrative costs related to income taxation to be very expensive. I spend about 200 hours per year just preparing my tax forms. At $100/hr, which is a reasonable rate related to a small enterprise, that equals $20,000 in time expendatures on my part. Instead of growing the enterprise I'm wasting it on dealing with government taxation. Once again this is another reason I support a consumption tax as opposed to income taxes because it imposes a non-value cost on my enterprise. This is a $20,000 expense that doesn't benefit anyone and doesn't improve my enterprise at all. While I do this myself I could also pay to have someone else do it and it would probably cost more to do so and now I have to generate at least double that in revenues. Nothing is "free" and these costs are the biggest problem to enterprise in America today. It isn't the "tax" that's the problem but the fact that only American enterprise pays the tax and that the method of collecting it is very expensive to the enterprise.
Lets say my taxes drop, so I make more profits. I can either put the extra money in the bank, and earn a bit of interest, or I can expand my business, and get more return on my money. I can expand in my current location, buy another location, or sell and buy a bigger location. In either case, it is likely I will need more employees. Lets say I don't even do that, I just spend my extra money, fixing up my home, buying another, eating out more often, etc. Those small businesses, with more business, and lower taxes, will hire more people. What is the government doing with the tax money to increase the economy?
Only providing two options is rather myopic as there are numerous other options for the small enterprise owner. Using additional profits because of any reason to establish a cash reserve is obviously the first thing that any enterprise should do. Cash reserves are just as important for an enterprise as they are for the individual and perhaps moreso. While every individual should have at least 6 months of cash reserves for emergencies I would, from a personal perspective of a small business owner, hold that a years cash reserves should be held by the enterprise. A fire, for example, could completely shut down the enterprise and while insurance will cover the fire loss it won't cover the financial loss to the enterprise. Yes, a small business owner could choose to use revenues above what is required to establish a cash reserve to expand the enterprise but there are risks in doing that. From a large corporation perspective we can demonstate those risks. In 2007, as I recall, there were 18 million new cars sold in the United States and GM and Chrysler expanded to provide more new cars. They invested tens of billions of dollars in this expansion but there was a problem. The average "new car demand" is only 14 million cars per year so there was a "bubble" in new car demand. when that bubble burst the demand for new cars dropped to 9 million new cars (this low demand balanced the high demand of the previous year) and GM and Chrysler couldn't contract rapidly enough to avoid bankruptcy. Expansion always includes risks and some small enterprises aren't even interested in expansion. I know many small business owners that are quite happy with the size of their enterprise and aren't interested in expanding at all. It would be especially problematic to expand an interprise if that expansion was based upon an increased profit margin as opposed to an increase in demand. A profit realized from a tax reduction, which is a lowering of non-value added expenses, does not indicate a reason to expand the enterprise. it instead would be a reason for lowing costs to the customer. Of course there is still the "extra" money left over after cash reserves are established so what to do with them? Obviously the owner can simply put them in their pocket but most won't. I know what I'd do before even considering expanding and that would be to give a bonus check to my employees. They're the ones that earned the money and they deserve a piece of the profits of their efforts. I might also invest in newer equipment to make the work easier for the employees that I have. Finally, depending upon how well I'm doing, I would reduce prices slightly lowering the costs to their customers which provides more value to the customer based upon the cost. Reducing cost/or and increasing customer value might generate more demand, or it might not, and only increased demand is a justification for expansion if the enterprise owner wants to expand. As noted many would choose not to expand at all because with expansion comes more risk and more headaches.
Myopic, or providing a few compelling, of many less compelling and ever more complex, reasons why lowering taxes increases hiring. Where would those cash reserves go? A bank (to be loaned), or investing in another company? Both, increase money in circulation. (Usually, those reserves would lower the cost of money (interest), stimulating the economy, but the Fed has screwed that pooch.) Another "benefit" of the boom and bust cycle the Fed, Fannie and Freddie, and to big to fail, sponsored. Should the auto makers not have sold cars those earlier years? Or, should they have expanded in a safer way? What should they have done? So, as in my second example, they spend the extra money, allowing that choose to, to expand. Staying small isn't free of risk. The primary point is, reducing taxes across the board, will put more money into the economy, which may incentivise small businesses to grow. Reducing taxes the same amount, focused on small business, is more likely to cause them to grow. Reducing taxes on big businesses, below other countries, incentivises them to make, and keep, thier profits in this country (the reverse of this is what Obama means when he refers to the "tax break to relocate off shore").
Once agian I can only relate my personal experiences as a small business owner. In providing a reserve I've invested in gold and silver because it's secure, protects against inflation and is readily convertable to cash if I need it. Does that improve the economy? I don't know that it does but it might have a minimal effect. The money is not invested in stocks (which don't do anything for enterprise unless it's an IPO that capitalizes an enterprise). The auto companies over-invested in expansion which put them at a high risk. It's better to sell all of a product and leave people wanting more than to expand and over-produce. As noted demand is a reason for expansion but there are risks and the auto industry went too far in expanding and knew what the average market was for new cars. True, staying small is not risk free but it's a lot less risky than unjustifiable expansionism. Overhead costs are substantially less so economic downturns have less impact. We can also look at some enterprises where the capital outlay for expansion is extremely high and the returns relatively low. It's certainly something that must be considered on a case by case basis. I would still maintian that simply making more money that isn't driven by demand doesn't justify expansion. Possible lowering prices which might increase demand might lead to a justifiable reason for expansion but not just more money. As noted my first impluse would be to establish some reserves if I need them, then provide a bonus to employees (which would possibly help the economy. Finally I'd lower prices reasonably for my customers. I would do all of these before thinking of possible expansion. Off shore accounts are very problematic but those are inherent in an income tax system. Money earned by US enterprise can and is be funneled to off shore accounts and the US economy doesn't benefit from this. A lot of additional income from tax breaks, where it's going to millionaires, would unquestionably be funneled to off shore accounts benefiting the individual and not the nation. Mitt Romney has millions in off shore "paper companies" in the Caymen Islands for example and none of this money is benefiting the US economy. As noted though these accounts are inherent in any income tax system because the "income" is channeled to a foreign country and the US cannot logically tax foreign income.
